Gifted share valuation must use the nearest balance-sheet date, and gratuity provisions are not added back in break-up value.

For valuing gifted shares, the balance-sheet nearest to the date of gift is the relevant basis, and the Tribunal erred by not proceeding on that footing; the valuation therefore required reconsideration on that issue. In computing break-up value, provisions for gratuity were not to be added back to the company's total assets, so that component of the valuation was rejected in favour of the assessee and against the Revenue. The stated principle is that break-up valuation must follow the governing valuation basis and cannot treat gratuity provisions as asset additions unless the valuation method specifically requires it.

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Issues: (i) Whether, for determining the market value of gifted shares, the balance-sheet nearest to the date of gift was the proper balance-sheet to be taken. (ii) Whether the provisions for gratuity were liable to be added back in arriving at the total assets of the company for the purpose of determining the break-up value of the shares.

Issue (i): Whether, for determining the market value of gifted shares, the balance-sheet nearest to the date of gift was the proper balance-sheet to be taken.

Analysis: The applicable principle was that, for valuation of gifted shares, the balance-sheet closest to the date of gift had to be adopted. The Tribunal had not proceeded on that basis.

Conclusion: The issue was answered against the assessee.

Issue (ii): Whether the provisions for gratuity were liable to be added back in arriving at the total assets of the company for the purpose of determining the break-up value of the shares.

Analysis: The liability towards gratuity was not to be added back while computing the total assets for break-up valuation.

Conclusion: The issue was answered in favour of the assessee and against the Revenue.

Final Conclusion: The valuation of the gifted shares required reconsideration on the first issue, while the gratuity provision could not be added back in the break-up valuation computation.

Ratio Decidendi: For valuing gifted shares, the balance-sheet nearest to the date of gift is the relevant basis, and gratuity provisions are not to be added back in computing break-up value unless the governing valuation principle so requires.

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